Assume That the Risk-Free Rate Is 5

question 55

Multiple Choice

Assume that the risk-free rate is 5%.Which of the following statements is CORRECT?

• A) If a stock's beta doubled, its required return under the CAPM would also double.
• B) If a stock's beta doubled, its required return under the CAPM would more than double.
• C) If a stock's beta were 1.0, its required return under the CAPM would be 5%.
• D) If a stock's beta were less than 1.0, its required return under the CAPM would be less than 5%.
• E) If a stock has a negative beta, its required return under the CAPM would be less than 5%.

---

Definitions:

Discontinued Operation

A component of a business that has been sold, disposed of, or is held for sale, and is reported separately in financial statements.

Consolidated Financial Statements

Financial statements that present the assets, liabilities, equity, income, expenses, and cash flows of a parent company and its subsidiaries as one single economic entity.

Subsidiaries

Companies that are controlled by another company, often referred to as the parent company, through ownership of over 50% of the subsidiary's voting stock.

Goodwill Impairment

A decrease in the value of goodwill on a company's balance sheet, indicating that the expected future cash flows from an acquisition are lower than initially estimated.